Your competitor’s pricing is information. How quickly you can act on it determines whether you protect your margin or lose the deal.

Having members of your team manually track this data can be time-consuming, but competitive pricing analysis can help you stay relevant for market share. Let’s go over product pricing strategies in a competitive market.

What is competitive pricing?

Competitor pricing, also known as competition-based pricing or competitor-based pricing, is a pricing strategy where a business sets its prices based on what their competitors charge.
So, instead of working from internal cost structures or perceived value, this approach uses external market data. It’s most commonly used in markets where comparable products or services are equivalent, making price the main lever for winning customers. 
This is different from cost-plus or value-based approaches. Competitor pricing is anchored by what your competitors are charging, so you can monitor this data and price at, above, or below that benchmark depending on how you want to position yourself. 
This marketing strategy works best when your offering is similar enough that customers will directly compare prices before deciding which to go with. 
PRO TIP: Don’t fall into these common pricing pitfalls.
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Did you know?

Competitor pricing models are primarily used by businesses selling similar products, with slight variations, keeping the primary product or service comparable.

Competitor pricing examples 

Uber vs. Lyft
An easy-to-follow example of competitor pricing would be Uber and Lyft.
Both rideshare companies are popular options for those looking for a taxi alternative to getting commute rides. They’re also priced relative to each other, and they know their customers open both apps before booking.
As part of their competitor pricing strategy, both companies frequently offer discounts to allure users to their app.
This can be discounts for booking in advance, discounts for upgrades, or even promotions to buy a certain amount of rides.
In 2024, the following stats have been reported on the two companies:
Uber accounted for 76% of observed U.S. rideshare spending in March 2024, compared to Lyft’s 24%1
Uber’s monthly average sales1 per customer was $107 in March, Lyft’s was lower at $95
Uber has significantly more revenue than Lyft2
Lyft drivers earn slightly more than Uber drivers on an hourly basis3
As a competitive edge, Uber offers a monthly subscription plan that includes Uber Eats food delivery for a bulk discount

Retail price matching (Best Buy, Target)

Brick-and-mortar retail shows a straightforward version of the same kind of strategy.
Best Buy’s price-match guarantee promises to match any qualifying competitor’s price on identical items. This is a direct application of competitor pricing.
Instead of winning on cost alone, Best Buy’s foundation is price parity. That way, they can compete on service, availability, and experience. Target does a similar thing, where it matches prices from major retailers both in-store and online. For B2B buyers evaluating vendors with very similar offerings, this kind of price-matching is very effective. 

Competitor pricing basics

Let’s say you take a look at the market and want to set your price a bit above the average.
To be successful with this method, you need to clearly establish what advantages your product or service is offering for the added value.
Things like, flexible payments, free add-ons, and more are good examples.
On the flip side, if you chose to set your price below the market standard, this may seem effective at first thought but could ultimately result in a loss if not approached correctly.
Remember, price points dictate value. If you go too far below your competitors, customers may see your product as being less valuable and result in you taking a loss.
Here’s what you need to take stock of before you pick a strategy:

  • What are the costs of your labor, shipping, overhead, and production costs?
  • What is the competition charging for similar products/services?
  • Do they offer values you do not, or vice versa?

Keep a pulse on the competition and market trends in addition to seasonality price adjustments.

How does competitive pricing affect consumers?

Competitive pricing can be a valuable strategy on the consumer side. Think of when you’re looking between two comparable products or services.
Let’s go with the aforementioned example of Uber and Lyft.
Chances are, you’ll open both apps and compare price points and how long it’ll take to: 1) get picked up, and 2) get to your destination, before deciding which to select.
Ultimately, if the estimated duration is pretty similar, it’ll come down to price, and which gets you the best value for your money.
See also
Hit by a sales slump? Unlock the secrets of price optimization and watch your profits soar

Why some pricing structures are considered unethical or overly aggressive in a competitive market

Price fixing is an unethical and often illegal practice that happens when businesses try to force their competitive edge in the market with unfair and predatory pricing.
For example, let’s look at two giant consumers: Target and Walmart.
They offer similar products across the board. But back in 2007, Walmart attempted to beat out the competition by offering generic drugs at a price so low they would take a loss (this was isolated to stores in the state of Minnesota at the time).4
Local authorities caught on and saw the violations of this predatory pricing approach, forcing Walmart to raise their prices.
Pro tip
Competitor-based pricing is typically used when comparable products or services have reached a level where they are balanced and equal to one another (meaning, there is no clear and distinct advantage or disadvantage to either). This is why pricing data is invaluable in a competitive landscape, regardless of your industry.

Competitive pricing strategies

See also
What is a pricing strategy? Types, examples, and how to choose
Your competitor’s products and market conditions need to be factored into decision-making before choosing your best price. Blindly adjusting your market price without taking into consideration the competitor’s price can be a major financial loss.

Price optimization comes from effectively setting prices for your target audience.
Your target market needs to see the value proposition and differentiation between you and the competition.
This type of value-based pricing is important to keep in mind when looking at the below competitor pricing analysis options.

Loss leaders

This refers to a product or service being reduced to a larger discount, and can often correlate with a revenue decrease if products are sold below the break even point.
Sometimes this is necessary to move inventory.
Important to note: This pricing strategy is illegal in about half of the U.S., and certain European countries such as France and Belgium.


Price skimming
This strategy is the flip of a lower price with the loss leaders method, aiming at maximizing profit margins with the launch of a new product or service.
See also
Price skimming clear guide with definition, how it works, examples, and pros and cons
For this to work, the value needs to be strong.
Either the product is one of a kind, or a significant upgrade to other products (including the company’s own) already on the market.
By setting the price higher, it shows clear value.

Premium pricing
Also referred to as luxury or prestige pricing, this is when a business sets a higher price point than the market average for similar products and services in order to convey value, particularly to attract new customers.


Penetration pricing
Penetration pricing is the method of setting a low initial offering price to gain traction and market value, with the long-term goal in mind of later raising the price as sales volume increases.

Price matching
Want to set the exact same price as your competitor and let the customer decide?
This method is risky, and local laws and policies need to be taken into account. It could work in your favor if it’s compliant and a customer is driven to your service. It could also backfire, if it encourages a customer to check out the competition.

Pros and cons of competitor pricing

Competitor pricing is a highly accessible strategy available for most businesses, but it can come with trade-offs. 
Here’s what to consider before making it a core part of your approach:
Pros

  • Simple to implement. It requires external market data rather than complex internal cost modeling. This makes it one of the easiest pricing strategies to get started with.
  • Market-validated pricing. By using competitor prices as your baseline, you can reduce the risk of pricing too high or too low relative to what buyers already expect to pay.
  • Flexible and reactive. Prices can be adjusted quickly in response to competitor moves, promotions, or broader market shifts. This keeps you nimble without needing a full strategy overhaul.
  • Effective in commoditized markets. When products or services are functionally similar across vendors, competitor pricing is often the clearest path to staying in the running.

Cons

  • Ignores internal costs. Following competitors without understanding your own cost structure can quietly erode margins. This means you may be “competitive” on price while actually losing money on each deal.
  • Can trigger price wars. Persistent matching or undercutting can pull the whole market into a race to the bottom, which hurts margins for everyone.
  • Assumes parity that may not exist. If your product or service delivers meaningfully more value than competitors, pricing purely on competition could significantly undervalue what you have to offer.
  • Reactive, not strategic. Without clear criteria for when and how to respond to competitor moves, competitor pricing can become a reactive habit instead of a deliberate part of your pricing strategy.

How to conduct a competitive pricing analysis

Conducting a structured analysis will always be better than an ad-hoc monitoring approach. 
Here’s how you can build your process:
Identify your direct competitors

Focus only on businesses selling a comparable product or service to the same buyer profile. Avoid including every competitor in your broader market, since a bloated list will be less useful to you. 

Gather competitor pricing data

Include sources like public pricing pages, sales conversations, customer feedback, review platforms like G2 and Capterra for SaaS products, industry reports, and direct research. Combining sources will give you a fuller picture, since few competitors publish everything openly.
Map pricing to product tier and value

A lower competitor price is only meaningful context if they’re offering comparable features or service levels. Create a side-by-side view that shows what’s actually included at each price point.
Identify where you sit

Determine whether your pricing lands above, at, or below market. More importantly, figure out whether that position is intentional and defensible.
Set a response framework

Decide in advance under what conditions you will match, undercut, hold, or raise prices. Rely on pricing analytics to inform these decisions instead of reacting in the moment. Ad-hoc reactions are how price wars start.
Monitor on a cadence

Quarterly at minimum; more frequently in fast-moving markets. Document changes over time so you can find trends. This is where pricing intelligence tools can help. Their systematic tracking means less manual effort and more insights you’d otherwise miss.

Tracking competitor prices manually at scale is where CPQ software earns its place — see how PandaDoc CPQ automates this process below.

Competitor pricing vs. other pricing strategies

Competitor pricing is a strategy that businesses use to set prices, but there are others to consider. 
Each strategy starts from an anchor. Understanding how they are different from one another will help you decide which approach works best for your market (and when it’s a good idea to combine them). 
Here’s a quick glance at some popular approaches:

Pricing strategy How price is set Best for
Competitor pricing Based on what rivals charge Commoditized markets, price-sensitive buyers
Cost-plus pricing Cost of production + markup Manufacturers, wholesale, predictable margins
Value-based pricing Perceived value to the customer Premium products, strong brand differentiation
Demand-based pricing Based on customer demand signals Seasonal products, dynamic markets, SaaS tiers


For a deeper look at cost-plus pricing and value-based pricing, see our full pricing strategy guide.

How CPQ software helps you act on competitor pricing

CPQ (Configure, Price, Quote) is a valuable software that businesses use to monitor real-time price fluctuations and streamline their adjustments accordingly.
This is super helpful when it comes to deciding your competitor pricing strategy.
CPQ can help you to:

  • Streamline price consistency and accuracy internally, across teams
  • Minimize the time spent in a sales cycle
  • Adjust pricing rules quickly, and easily

Here’s what CPQ makes possible:

Real-time monitoring and team alignment 

By integrating CPQ with your existing systems, valuable customer data and insights can be accessible in one easy place across teams to monitor competitor pricing.
This helps to streamline communication and transparency, cutting down on the possibility of human error if teams aren’t aligned with pricing changes as they happen (which is often in real time).
Dynamic pricing models 
CPQ lets you build pricing rules that respond to competitor moves automatically, without needing to manually recalculate margins every time a competitor adjusts their price. 
If you’re in a market with very thin margins and need to stay aggressive, these rules can lessen the risk of losing the deal.
Quote speed and accuracy 
When a competitor drops their price, the businesses that respond fastest will win. CPQ compresses quote turnaround from hours to minutes. This makes for better price consistency internally and minimal time spent in the sales cycle.
Discount controls and margin protection
CPQ enforces pricing rules so reps can compete aggressively without accidentally giving away margin. Approval workflows can also catch discounts before they erode profitability. 
This is a more structured alternative to ad-hoc price matching. If you’re building out a broader discounting strategy, CPQ will give you the controls to execute it consistently.
Analytics and visibility
CPQ surfaces loss rates, discount patterns, and competitive win/loss data that inform you so you can make smarter future decisions. 
This plus dedicated pricing analytics will help you close the loop between what the market is doing and what your pricing should do in response.

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Emerson McCuinDirector of Revenue Operations at HAAS Alert

Our client HAAS Alert saved over 120 hours a month of admin work, increasing their document creation efficiency by 66.67% by using PandaDoc CPQ for HubSpot to better their sales cycle.

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FAQ

Competitor pricing, also called competition-based pricing or competitor-based pricing, is a strategy where businesses set prices based on what competitors charge instead of internal costs or customer value. It’s common in markets where comparable products have reached functional parity and the price is the primary differentiator.

Uber and Lyft are an example, where both platforms are priced relative to each other. They run promotions to pull users from the competing app and adjust based on how the competitor moves. 

Best Buy and Target are other examples, where both match competitor prices on identical items so that price parity is the foundation as they compete on service and availability.

The main approaches include matched pricing (pricing at the same level as competitors), undercut pricing (pricing below to win on cost), premium pricing (pricing above to signal higher value), and price matching guarantees (committing to meet any competitor’s price reactively). Each strategy has different margin implications and works best in different market conditions.

Advantages of competitor pricing are that it’s simple to implement, market-validated, and easy to adjust quickly. It also works especially well in commoditized markets. The disadvantages are that it ignores your internal cost structure, can trigger price wars, may undervalue a genuinely superior product, and can become reactive without a clear response approach in place.

You want to identify direct competitors that are selling to the same buyer profile, get pricing data from public pages and review platforms, and compare prices to actual product tiers so you have an accurate comparison. You then want to determine where your pricing sits relative to the market, build a framework for when you’ll match, undercut, or hold prices. Finally, you should monitor on a regular cadence, at least quarterly.

Competitor pricing is based on what your competitors charge. Value-based pricing is based on what the product is worth to the customer, which is separate from competitor prices or production costs. Competitor pricing is faster to implement, whereas value-based pricing can yield higher margins. But value-based often requires strong differentiation and a clear understanding of what the customer is willing to pay.

CPQ integrates pricing data and customer insights all in one place, which reduces manual monitoring across your team. That means you can build dynamic pricing rules that respond to competitor moves automatically, enforce discount rules to protect your margins, and uncover win/loss and discount pattern data so you can make smarter future pricing decisions.

Yes, competitor-based pricing, competitive pricing, and competition-based pricing are all terms that refer to the same strategy. These terms are interchangeable across industries.